Company announces acquisition, partnership to compete in virtualization

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SEATTLE — Microsoft Corp. on Monday announced several moves it says will help its business customers take advantage of a technology called virtualization, and in the process help the software maker catch up with VMware Inc., the frontrunner in that area.

Virtualization allows one physical computer to house multiple "virtual machines," each one acting like a separate computer with an operating system and all the software that runs on top of it.

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For office workers, virtualization might mean that "their computer" is actually a virtual machine running on a server — not the actual hardware on their desks — and can be accessed from any work station. That, in turn, could make it easier for IT workers to install new applications across an entire company network or back up an individual's computer with all its settings, and would make losing a laptop much less disastrous. What's more, older hardware that would have been replaced can have a longer life connecting to virtual desktops housed on more powerful servers.

To help move the virtual desktop scenario forward, Microsoft said Monday it plans to acquire Calista Technologies Inc., a San Jose, Calif.-based start-up founded in 2006. Calista's technology makes logging on to a virtual desktop feel more like working on a physical Windows computer, Microsoft said. No financial details of the agreement were disclosed.

Microsoft also said it will expand an alliance with another virtual desktop computing company, Citrix Systems Inc., that will help their respective products work well together.

Redmond-based Microsoft also announced it will cut the cost of licensing Windows for use on virtual machines to $23 from $78 per year for its big business customers.

Reversing its previous policy, the company said all versions of Windows Vista, including the least expensive Vista Home Basic, can be virtualized.

Microsoft is set to launch the next generation of its server operating system, Windows Server 2008, in February, but a key piece of software that enables virtualization, Hyper-V, won't be available until six months later. Once all the pieces fall into place, however, Microsoft says its line of server and desktop virtualization technology and the programs IT workers need to manage their mix of virtual and physical machines will push many more to adopt the trend.

"We estimate that less than 5 percent of companies are utilizing virtualization technology because it is simply too cost-prohibitive and complex," said Bob Muglia, senior vice present of the Server and Tools business at Microsoft, in a statement. "We believe Microsoft's comprehensive approach — from desktop to datacenter — is unique to the industry."

Not so, said Raghu Raghuram, vice president of products and solutions at VMware, which began selling virtualization technology in 2001 and has captured as much as of 80 percent of the market, according to analysts.

"Microsoft is putting the foundation in place. We've got a several-story office building already there, with people moved in," he said. Raghuram said VMware's products match what Microsoft plans to offer, and then some.

In interviews, both companies pushed their set of virtualization tools as lower-cost. Yankee Group analyst Laura DiDio said in an interview that a comparable Microsoft offering could cost as little as one-third of what VMWare charges.

"Until recently, there was not much competition," she said. "Now what I'm hearing from customers is, they're glad to see Microsoft stepping up to the plate. They like VMWare's products, but they don't want to pay those high prices."

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